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Accendo’s Foreign Exchange Forecasts, Monday 20 November 2017

Macro observations

As far as negotiations in Europe go, these were meant to be the easiest taking place over the next 18 months or so. And yet, late last night, the news broke that German coalition talks had broken down as the FDP walked away from talks with Angela Merkel’s CDU/CSU and the Green Party.

What had become commonly known as the ‘Jamaica’ coalition is now in tatters, however German President Steinmeier, amongst others, has shied away from the idea of fresh elections. The only other options for Chancellor Merkel would be the reformation of a ‘grand coalition’ with her rival SPD party, something that the latter has flatly ruled out, or leading a minority government with the help of a smaller party.

Ultimately, Steinmeier can choose to call fresh elections should all other options run out, but for now, the economic powerhouse of the Eurozone has been plunged into unprecedented political uncertainty.

While the Euro initially sold off at the announcement of the collapse, the ensuing calls for calm from the country’s leaders have helped to inspire confidence in the single currency, while another issue entirely haunts the US dollar.

Having initially timetabled Thanksgiving as the deadline to pass its crucial tax reform plan, US Treasury Secretary Mnuchin has now said that he hopes to have the all-important bill signed by President Trump before Christmas.

The latest delay to what Trump hopes will be his first major legislative victory has further dented hopes that it will indeed be passed. House Republicans managed to pass their version of the Bill last week, although with only a handful of seats comprising the party’s majority in the Senate, any Republican dissent in the upper chamber could prove costly.

Keep an eye out for any announcements or criticisms of the plan by Republican Senators before Thursday’s Thanksgiving holiday, where lower volumes in the US market could create greater than usual trading volatility for the global reserve currency.

The dollar will also be reacting to a Tuesday speech from Fed Chair Janet Yellen (11pm) and Wednesday’s minutes from the November FOMC meeting (7pm) for any clues as to future monetary policy. While a rate hike is virtually priced in at December’s meeting (a 97% chance according to Fed Fund futures), gauging how many rate hikes are forecast to take place in 2018 will be a key task.

The main event of the week, however, will be taking place just hours before the FOMC minutes are released. The UK Budget, delivered by Chancellor Philip Hammond in the Commons after weekly Prime Minister’s Questions, will have a major bearing on Sterling this week.

The Chancellor is expected to announce plans to increase spending on Housing, Healthcare and Technology, however the general tone of the announcement will be carefully assessed alongside the prospects for growth in the UK economy.

The cautious Chancellor – known to many inside Parliament as ‘Spreadsheet Phil’ – has been urged to open the spending taps to help growth ahead of Brexit. But can he deliver as his party struggles to inspire economic confidence in the UK?

Other major data of note includes UK Public Sector Net Borrowing (Tuesday; 9:30am), US Existing Home Sales (Tuesday; 3pm), Eurozone Consumer Confidence (Wednesday; 3pm), US Michigan Consumer Sentiment (Wednesday, 3pm), UK Q3 GDP (Thursday; 9:30am), the minutes from the ECB’s October meeting (Thursday; 12:30pm) and German IFO Surveys (Friday; 9am).


Key data this week (Sign up here to receive our daily live macro-calendar)

Tuesday 21 November

UK Economic Announcements
09:30     Public Sector Net Borrowing
11:00    CBI Industrial Trends 

Intl Economic Announcements
00:30     RBA Meeting Minutes (Australia)
04:30     All Industry Activity Index (Japan)
13:30     Chicago Fed Index (USA)
15:00    Existing Home Sales (USA)

Wednesday 22 November

UK Economic Announcements
09:30     BoE FPC Meeting
12:30    Chancellor Hammond makes Autumn Budget Statement

Intl Economic Announcements
13:30     Durable Goods (USA)
15:00    Consumer Confidence (Eurozone)
15:00    Michigan Consumer Sentiment (USA)
15:30     Oil Inventories (USA)
19:00    FOMC Minutes (November meeting)

Thursday 23 November

UK Economic Announcements
09:30    Q3 GDP
11:00      CBI Distributive Trades 

Intl Economic Announcements
Thanksgiving – US Markets closed all day
07:00    GDP (Germany)
08:30     Manufacturing & Services PMI (Germany)
09:00    Manufacturing & Services PMI (Eurozone)
12:30    ECB Minutes (October meeting)

Friday 24 November

UK Economic Announcements
09:30     BBA Mortgage Approvals

 Intl Economic Announcements
Thanksgiving – US Markets close early (1pm ET/6pm GMT)
05:00      Coincident & Leading Economic Index (Japan)
09:00     IFO Surveys (Germany)
14:45     Manufacturing & Services PMI (USA)


GBP/USD (‘Cable’)

Technicals

  • Cable has continued to build on rising lows support since last week. Can it regain $1.33 handle?
  • Stochastics approaching overbought; RSI broken above 50 = bullish
  • Momentum remains positive although close to zero
  • Directional indicators diverging bullishly

GBP/EUR


Technicals

  • Sterling is testing falling highs resistance at €1.125 after German political chaos. Can it return to €1.14?
  • Stochastics recovered from oversold; RSI broken above 50 = bullish
  • Momentum is falling having failed to stay above zero
  • Directional indicators converging bullishly

EUR/USD

Technicals

  • The Euro has fallen from insteresting resistance at $1.186. Will it return to support at $1.115?
  • Stochastics have recovered from overbought; RSI has bounced from 50
  • Momentum remains positive and around best levels since October
  • Directional indicators converging bearishly

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This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.

Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research

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